NCUAs Proposed Rule and Guidance on Response Programs for Unauthorized Access to Member Information

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the concept of
charging fees to originating depository financial institutions (ODFIs) when they return certain automated
clearing house (ACH) entries. CUNA, a national trade association, represents more than 90 percent of the
nations 10,000 state and federal credit unions. CUNA opposes this concept because there are alternative
concepts that are less burdensome that could help reduce the return rate.

The request for comment presents the concept of possibly charging fees for certain ACH entries that are
returned. There are no fees currently imposed for return entries. The concept presented by NACHA would work
in the following way:

NACHA would charge fees to ODFIs for all Unauthorized (R07, R10, and R29) and Invalid
Account (R03 and R04) ACH debit entries that are returned by RDFIs.

These fees would be distributed to receiving depository financial institutions (RDFIs).

The fees that all RDFIs receive would be discounted by the percentage of times that all
RDFIs cause returns. For instance, if RDFIs were determined to cause 20% of Unauthorized returns,
then RDFIs in the system would only receive 80% of the fee.

Summary of CUNA's Views

CUNA strongly opposes the concept of charging fees to all ODFIs for the following reasons:

This approach represents a complex, global solution that affects all ACH participants.

This approach encourages ACH participants to change their behavior in ways that could increase
the number and cost of processing ACH returns.

The fees impose administrative burdens on RDFIs and ODFIs.

The fees would be passed to consumers.

Discussion

CUNA strongly opposes the introduction of fees into the ACH system because more limited alternatives,
directed to responsible participants seem to have worked in the past. For instance, NACHA has been able to
dramatically lower returns for TEL entries, ACH entries created over the telephone, by working with ODFIs and
originators that create a disproportionate number of the returns. A better alternative would be for NACHA to
work with those ODFIs and originators that are creating disproportionate returns rather than impose a
complex, costly system on every ACH stakeholder.

Similarly, NACHA should continue to pursue other recent risk reduction measures. These measures have
included ACH operations bulletins on risk management, streamlining NACHAs rules enforcement mechanism,
providing industry education, and providing briefings and other assistance for federal consumer protection
and financial regulatory agencies. We believe these measures have been effective and practicable for all
participants, and should help make the ACH system more effective.

CUNA strongly opposes this proposal because it may encourage institutions to change their behavior in
detrimental ways that increase the cost of processing ACH returns. For instance, RDFIs may research an
entry. If RDFIs received fees for returns, then they may stop posting ACH debits with incorrect account
information and just return these items instead. If institutions changed their behavior in this manner, then
the number of ACH returns in the system would increase. On the other hand, this proposal may encourage ODFIs
to request affidavits more frequently, when an ACH item is returned. This modification would increase the
burden of handling returns for ODFIs and RDFIs. The behavioral changes prompted by the proposal could
outweigh any of the perceived benefits.

Similarly, CUNA opposes this proposal because establishment of a fee system would impose administrative
burdens on RDFIs and ODFIs. In particular, establishing a fee system would require ODFIs and RDFIs to hire
additional staff to monitor the payment and collection of fees, and to track ACH return experiences for the
purpose of establishing fee discounts in the future. In addition, tracking ACH return experiences would be
especially costly because it would likely require time-consuming and labor-intensive follow-up with RDFIs and
consumers to determine and document which party was at fault for the return. Both ODFIs and RDFIs would have
to expend resources to monitor and validate the accuracy of such a fee system as well as attempt to track and
substantiate return experiences to justify future discount percentages.

Finally, CUNA believes that the imposition of fees would make this proposal more expensive for consumers
to use the ACH system because ODFIs would pass these fees along to the originators and possibly to consumers.

Conclusion

For all the reasons cited above, CUNA strongly opposes this proposal to introduce return fees into the ACH
network. CUNA urges NACHA to develop and expand successful initiatives already in place before proposing new
risk management initiatives, especially ones that would impose costly administrative burdens on the ACH
network and ACH stakeholders. If you have any further questions, please contact CUNA's Senior Vice President
and Associate General Counsel Mary Dunn or me at (202) 638-5777.